Examining the Asymmetric Effects of Monetary Policies on GDP in the Short and Long Run Using the NARDL Technique
Keywords:
Gross Domestic Product, Monetary Policy, Liquidity, Economic Growth, NARDL TechniqueAbstract
This study aimed to examine the asymmetric impacts of positive and negative monetary policy shocks on Iran’s gross domestic product (GDP) in both the short and long run. This applied and descriptive–correlational research used seasonal data on GDP, liquidity, and the real exchange rate from the Central Bank of Iran covering 1991:1–2019:4. After testing for stationarity with the HEGY approach and ruling out second-order integration, the Nonlinear Autoregressive Distributed Lag (NARDL) model was employed to estimate short- and long-term relationships. The Pesaran bounds test confirmed cointegration, and diagnostic tests validated the model’s adequacy. Results revealed that only positive liquidity shocks significantly increased GDP in the long run (β=0.074, p<0.05), while negative shocks were insignificant. In the short run, initial effects of both positive and negative shocks were insignificant; however, a one-period lagged positive shock significantly boosted GDP (β=0.143, p<0.01). The negative and significant error correction term (ECM=-0.89) indicated rapid convergence to long-run equilibrium. Monetary policy effects on GDP in Iran are asymmetric, with expansionary shocks having stronger and more persistent growth impacts than contractionary shocks. Linear models fail to capture these dynamics; thus, policymakers should rely on nonlinear approaches like NARDL for more accurate analysis and effective policy design.
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